Jenny Ellis
A treasury bill, or T bill, is a short term debt security issued by the U.S. Treasury that matures in a year or less. Instead of paying regular interest, it is sold at a discount to its face value, and the government pays the full amount back when it matures, with the gap between the two prices serving as your return.
At a Glance
- T bills mature in terms ranging from four weeks to 52 weeks and are sold at a discount rather than paying periodic interest.
- Minimum purchase is typically $100, with non competitive bids allowed up to $10 million.
- Interest earned is taxed at the federal level but exempt from state and local income taxes.
- They can be bought directly through TreasuryDirect or through a brokerage account, usually for a small fee.
- Because they carry the backing of the U.S. government, default risk is essentially zero, though returns tend to run lower than corporate bonds or some CDs.
How a Treasury Bill Actually Works
Unlike a bond that mails you a check every six months, a T bill pays you nothing until the day it matures. You buy it below face value, and the difference between what you paid and the $100 (or larger) face amount you collect at maturity is your entire return. The Treasury auctions these bills in maturities of four, six, eight, 13, 17, 26 and 52 weeks, and the government uses the proceeds to fund its ongoing spending needs.
Say the Treasury issues a 52 week bill in April and you buy it on May 1 for $95.419667 per $100 of face value. On a $1,000 bill, you would pay $954.19667 upfront and collect the full $1,000 when it matures a year later, a gain of $45.80. That gain counts as interest income for tax purposes, even though no interest payment ever technically arrived in your account.
Buying a T Bill Step by Step
Investors have two main paths: a brokerage account, which usually charges a modest fee, or TreasuryDirect, the Treasury's own online platform, which lets you buy directly with no middleman. To use TreasuryDirect, you will need a Social Security number, a U.S. address and a bank account for payments and deposits.
- Visit TreasuryDirect.gov and choose an account type: individual, business, estate, organizational or trust.
- Enter your taxpayer identification number, address and bank account information.
- Set up a username and password, then verify the account.
- Log in, click
